Anyone signing a real estate contract on behalf of an LLC must have proper legal authority documented before the transaction. Without this documentation, contracts can be challenged and potentially invalidated, as demonstrated in a recent Louisiana Court of Appeals case.
At Melancon, Rimes & Daquanno, we frequently see real estate disputes that could have been prevented with proper documentation of corporate authority. The 2023 case Conroy v. Suzico illustrates why verifying signing authority is one of the most important steps in commercial real estate transactions.
What Happened in Conroy v. Suzico
In August 2020, Christopher Conroy entered into a purchase agreement to buy commercial property in Baton Rouge for $1.44 million from Suzico, L.L.C. The agreement was digitally signed by Madeline Ahlgren Melanson on behalf of the LLC.
The problem: Melanson was not the designated manager of Suzico at the time she signed the contract. When Suzico refused to complete the sale, Conroy filed a petition for specific performance to force the transfer.
Suzico defended the lawsuit on multiple grounds. First, the company claimed Melanson lacked legal authority to bind the LLC to the sale. Second, Suzico alleged the $1.44 million price was substantially below the property’s true market value of approximately $3 million, making it subject to rescission under Louisiana law.
The Ratification Attempt
Two months after the initial contract, an addendum extending the closing date was signed by Jared Blackburn, who was an authorized representative of Suzico. Conroy argued this signature ratified the entire transaction, including Melanson’s unauthorized signature.
The trial court initially agreed and granted summary judgment dismissing claims against Melanson.
The Appeals Court Decision
The Louisiana First Circuit Court of Appeal reversed the trial court’s decision in February 2023.
The appeals court held that ratification must be voluntary and knowing. If the ratification is based on fraud or error, it is invalid. The court found that Suzico presented sufficient evidence to create a genuine issue of material fact about whether the ratification was induced by fraud.
Specifically, if Suzico’s owners were misled about the property’s value (believing $1.44 million was fair when it was allegedly worth over $3 million), their ratification via the addendum was based on error. This meant the original lack of corporate authority could void the entire deal.
You can read the full decision at Conroy v. Suzico, 2022-CA-0974 (La. App. 1 Cir. 2/24/23).
Understanding Lesion Beyond Moiety
The Conroy case also highlights a unique feature of Louisiana property law called lesion beyond moiety. This doctrine protects sellers from selling property far below its value.
Under Louisiana Civil Code Article 2589, a sale of real property can be rescinded when the price is less than one-half of the fair market value of the property.
Example: If a property’s fair market value is $3 million, any sale price below $1.5 million triggers lesion beyond moiety. In Conroy, Suzico claimed the $1.44 million price was lesionary because the property was worth more than $2.88 million.
Important limitations:
- Only sellers can claim lesion, not buyers who overpay
- It applies only to land and buildings, not movable property
- The action must be brought within one year from the date of sale
- This one-year period cannot be extended or interrupted
Why Corporate Authority Matters in Louisiana Real Estate
In Louisiana, an LLC is a distinct legal entity. Members or agents cannot sell the company’s real property without express authority. This authority typically comes from the company’s operating agreement or a specific resolution.
The distinction between member-managed and manager-managed LLCs is critical:
Member-Managed LLCs: Each member can act as an agent for ordinary business matters. However, selling real estate is often not considered ordinary business, requiring a specific vote.
Manager-Managed LLCs: Only designated managers have authority to bind the LLC. Regular members cannot sign contracts for the company.
How to Verify Signing Authority for Real Estate Transactions
To avoid disputes like Conroy, proper documentation is essential. Here’s what you need:
For Buyers and Sellers
Articles of Organization: Filed with the Louisiana Secretary of State, these establish whether the LLC is member-managed or manager-managed.
Operating Agreement: This private contract among members dictates internal voting rules and may require unanimous approval for property sales.
Certificate of Authority or Resolution: This is the most important document. Under Louisiana Revised Statutes 12:1317, a certificate signed by a manager or member provides a legal safe harbor for third parties.
The certificate should:
- Name the specific person authorized to sign
- Reference the specific transaction
- Be dated before or at the time of signing the contract
Certificate of Good Standing: Proves the entity legally exists and is current with state filings.
For Real Estate Agents
Under Louisiana Act 690 (effective August 2024), real estate licensees must execute written Buyer Agreements before providing brokerage services. When working with an LLC, verify the person signing this agreement has authority to bind the company to pay fees.
Document your verification:
- Request copies of the Certificate of Authority
- Keep these documents with the transaction file
- Do not rely on verbal assurances of authority
Common Mistakes to Avoid
Assuming Family Members Have Authority: Just because someone is related to the LLC owner doesn’t mean they can sign contracts for the company.
Accepting After-the-Fact Ratification: As Conroy demonstrates, trying to fix authority problems after signing is risky. The ratification can be challenged if based on fraud or error.
Failing to Verify Each Transaction: Even if someone signed for the LLC before, they need specific authority for each new transaction, especially real estate sales.
Ignoring Valuation: A price less than half the market value creates legal risk under lesion beyond moiety, regardless of corporate authority issues.
How Long Can Corporate Authority Be Challenged?
Under Louisiana Revised Statutes 9:5646, actions to set aside a sale due to lack of authority must be brought within five years from the date of recordation.
However, if the challenge is based on fraud rather than just missing documentation, the period is five years from discovery of the fraud under Louisiana Civil Code Article 2032. This creates longer potential liability.
Recent Legislative Changes (2024)
Louisiana lawmakers enacted several changes affecting real estate transactions:
Act 690: Requires written Buyer Agreements, making authority verification critical at the start of the relationship, not just at closing.
Act 789: Repealed the Single Business Enterprise doctrine, strengthening the legal separation between related LLCs. Each entity must have separately documented authority.
Act 363: Banned predatory long-term listing agreements (NTRAPS) that clouded property titles.
Industry Data on Authority Disputes
According to a 2024 analysis by the American Land Title Association, approximately 24% of all title insurance claims involve basic risks including authority of parties, competency, and capacity.
Claims related to fraud and forgery account for 21% of total claim costs. The average fraud claim costs over $143,000, more than five times the average of other claim types.
These statistics demonstrate that authority questions are not rare edge cases. They represent a significant source of real estate disputes and financial loss.
Frequently Asked Questions
Q: Can any LLC member sign a real estate contract?
A: Not automatically. The LLC’s operating agreement and Articles of Organization determine who has signing authority. Without proper documentation, even a member’s signature can be challenged.
Q: What happens if someone signs without authority?
A: The contract may be voidable. The LLC can potentially refuse to complete the transaction, as Suzico attempted in the Conroy case.
Q: Can a signature be ratified after it’s signed?
A: Yes, but ratification must be done without fraud, error, or duress. Courts will examine whether the person ratifying had accurate information about the transaction.
Q: How can I protect myself as a buyer?
A: Always request a Certificate of Authority before signing any contract. Verify it’s dated before or at the time of the contract signing. Consider obtaining an independent appraisal to avoid lesion issues.
Q: What should sellers do?
A: Ensure your LLC’s operating agreement clearly defines who can sign contracts. Update your Articles of Organization if needed. Have your attorney prepare a Certificate of Authority for any real estate transaction.
Checklist: Verifying Authority in Real Estate Transactions
Before accepting a signature on a commercial real estate contract:
- Verify signer’s name matches LLC operating agreement
- Request written Certificate of Authority from LLC
- Confirm authorization is dated before contract signing
- Keep copies of all authorization documents
- Verify LLC is in good standing with Secretary of State
- For high-value properties, consider independent appraisal
- Document any questions or concerns in writing
Protect Your Real Estate Transaction with Experienced Legal Counsel
Real estate transactions involve significant financial commitments and complex legal requirements. At Melancon, Rimes & Daquanno, we help buyers, sellers, and real estate professionals ensure all parties have proper authority and documentation.
Our commercial litigation team has over 50 years of combined experience handling real estate disputes throughout Louisiana. We have secured significant results in complex business disputes, including a $1.5 million settlement in an antitrust case. We prepare every transaction with trial-ready attention to detail.
Unlike many firms, our partners directly manage every case from beginning to end. You work with experienced attorneys who understand Louisiana’s unique Civil Law system and the specific requirements for corporate authority in real estate transactions.
Contact us at (225) 303-0455 for a free consultation about your commercial real estate transaction or dispute. We serve clients throughout the greater Baton Rouge area and across Louisiana.
The information in this article is for educational purposes and does not constitute legal advice. Real estate law is complex and fact-specific. Consult with a qualified attorney about your specific situation.